Loral Space & Communications is weighing up its future ownership in both Canadian satellite operator Telesat and satellite manufacturer Space Systems Loral.
Following Telesat’s announcement that it is conducting a strategic review that could result in…
Loral Space & Communications is weighing up its future ownership in both Canadian satellite operator Telesat and satellite manufacturer Space Systems Loral.
Following Telesat’s announcement that it is conducting a strategic review that could result in an IPO of the business, Loral stated that it would look to separate SS/L, via a spin-off or sale, in order for its shareholders to benefit more from any transaction.
The company stated: “In order to maximize the benefits to Loral shareholders of any strategic transaction that may result from this process, it will likely be advisable to separate Loral’s non-Telesat assets so that any transaction involving Loral’s interest in Telesat could be structured in the form of a transaction at the parent company level.
“Accordingly, in the event of any such transaction, Loral would, prior to the transaction, likely spin-off or sell its interest in SS/L (or its remaining interest if there has first been an SS/L initial public offering), and otherwise separate from Loral the remaining non-Telesat assets. There can be no assurance whether or when any transaction involving any or all of Loral, Telesat or SS/L may occur.”
As SatelliteFinance reported back in September, Loral was running a parallel process for SS/L, both filing for a potential NASDAQ IPO to list 19.9% of the satellite manufacturer and sounding out potential buyers over a full sale. Credit Suisse and JP Morgan have been mandated to run the process.
According to one source, Loral has received a number of bids for SS/L but these were well below the parent0’s valuation and so the company is pushing ahead with the flotation.
The source added that, given SS/L’s value creation is largely through in-orbit receivables and its margins relatively low, Loral may struggle to get a premium on its investment in the equity market and may just spin out the company. However, in its third quarter 2010 results, SS/L reported a significant jump in both revenue and EBITDA. Q3 revenue was up 28% year-on-year to US$325m, while adjusted EBITDA was 76% higher at US$56m.
Loral itself is majority owned by MHR Fund Management with the latter’s co-founder and president Mark Rachesky also the non-executive chairman of Loral.
As part of its third quarter results, Telesat CEO Daniel Goldberg revealed that he had been given the go-ahead by the board of directors and shareholders to explore an IPO of Telesat’s shares or other strategic alternatives, although he declined to give further details.
The operator is 64% financially owned by Loral, while Canadian pension fund PSP owns the remaining 36%. However, Loral’s share of the voting rights is only 33.33% as a result of now defunct Canadian ownership rules. These ownership restrictions were removed by the Canadian government earlier this year, giving Telesat’s owners greater strategic flexibility with potential investors.
One banker told SatelliteFinance that he expects that a sale to a strategic buyer may be a more likely option than an IPO, with the likes of Eutelsat and possibly EchoStar mooted as potential bidders. “My bet would be a trade sale as the most likely, followed by an IPO and then a sponsor-led acquisition,” the banker remarked. Telesat declined to comment further on the strategic review.
Telesat recorded C$209m (US$208m) in revenue for the three months to 30 September 2010, representing a 12% increase to the C$23m (US$22m) it posted for the corresponding period in 2009. When adjusted for foreign exchange rate differences, the revenue increase is 14%, the company said.
EBITDA for Q3 2010 was C$160m (US$159m), an increase of 24% compared to the C$31m (US$30m) recorded for the corresponding period last year, or a 26% rise when factoring in foreign exchange rate changes.
According to the company, the year-on-year surge in revenue was primarily driven by its Nimiq 5 satellite, which had its capacity pre-purchased by US-based EchoStar, and its Telstar 11N bird.
